Pawnbroker to strike gold by branching out into loans
The investment column that makes the most of your money
H&T opened its first pawnbroking shop in London in 1897. Today it is the UK’s largest pawnbroker, with 181 stores dotted up and down the country.
Pawnbroking is a mature industry, but H&T has recently branched into other fields, including personal loans and foreign exchange. The shares are 270p and should increase materially as these new businesses expand and develop.
The sector went through several halcyon years after the financial crisis, when the gold price was rising and customer numbers soared.
However, in 2012 the gold price dropped, customer numbers fell and the sector shrank as businesses closed completely or decreased in size. H&T was not immune, but it was more robust than most and has now consolidated its position as Britain’s leading pawnbroker.
The changing climate prompted some serious soulsearching by chief executive John Nichols and his finance director, Stephen Fenerty. The duo decided to reduce their reliance on pawnbroking and add new services in fast-growing areas, such as unsecured loans, available both in store and online.
Most customers want short-term loans and might otherwise go to payday lenders. Even after the recent clampdown on exorbitant interest rates, the more established operators tend to charge an APR of about 1,200 per cent. H&T’s APR is nearer 185 per cent – still well above bank rates, but much cheaper than payday lenders. As a result, the company has been winning new customers fast, increasing its loan book by 123 per cent last year to £9.4million.
H&T also claims to offer the best foreign exchange prices on the high street and recently launched a service, known as Buyback, where it offers cash in exchange for mobile phones and laptops, either acquiring the items outright or for up to 31 days, after which customers buy them back with interest.
H&T has gone digital too, so customers can take out loans online. They can even post photos of items they want to pawn, receive an estimated valuation and come into stores if they want to proceed.
In a trading statement last week, H&T said its pawnbroking book rose 5.9 per cent to £41.3million last year. That business is still far larger than the loan division and other subsidiaries, but these areas are expected to expand at a faster rate. Stockbroker FinnCap believes profits will rise 36 per cent to £9.3million for the year just ended, increasing to £10.2million in the current year. A dividend of 9p is forecast for 2016, surging to 12p this year.
Midas verdict: H&T has proved its resilience in recent years. Now the group is showing that it can be innovative too.
At 270p, the shares have performed well in recent months and the price should rise as the new businesses gain ground. Buy.